Public Provident Fund Knowledge Series

public provident fund
  • Public Provident Fund is a savings cum tax saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968
  • Only Resident Individuals can open an account. HUF & Non-resident are not allowed to open an account.
  • Minimum 500 to Maximum 1,50,000. Any amount deposited over and above 1,50,000 won’t earn any interest.
  • Minimum Duration is 15 years and thereafter it can be extended for 1 or more blocks of 5 years each.
  • If account holders are in need of funds and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years.
  • An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.

Subscriber has 3 options once the maturity period of the PPF deposit is over.

1. Complete withdrawal.

2. Extend the PPF account with no contribution.

The PPF account can be extended after the completion of 15 years, the subscriber doesn’t need to put any amount after the maturity. This is the default option meaning if the subscriber doesn’t take any action within one year of his PPF account maturity this option activates automatically. Any amount can be withdrawn from the PPF account if the option of extension with no contribution is chosen. The only restriction is only one withdrawal is permitted in a financial year. Rest of the amount keeps earning interest.

3. Extend the PPF account with a contribution.

With this option, the subscriber can put money in his PPF account after extension. If the subscriber wants to choose this option, then he needs to submit Form in the bank where he is having a PPF account within one year from the date of maturity (before the completion of 16 years in PPF). With this option, the subscriber can only withdraw a maximum of 60% of his PPF amount (amount which was there in the PPF account at the beginning of the extended period) within the entire 5 years block. Every year only a single withdrawal is permitted.

Tax Benefits of Public Provident Fund: –

1. Interest Income earned on PPF is exempt under section 10(11).

2. Entire Maturity amount received is exempt.

3. Deduction u/s 80C every year for any amount deposited in PPF (maximum 1,50,000)

Premature closure of PPF account: –

Premature closure of PPF account is permitted after completion of 5 years for medical treatment of family members and for the higher education of PPF account holder. However, premature closure comes with an interest rate penalty of 1%.

Loan facility with Public Provident Fund account: –

  • Loan facility available from 3rd financial year up to 6th financial year. Up to a maximum of 25 per cent of the balance (at the end of the 2nd year or immediately preceding the current year) would be allowed as loan. Such withdrawals are to be repaid within 36 months.
  • A second loan could be availed as long as you are within the 3rd and before the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for a loan.